SEC Filings

through 2022, which will be extended for the next five years thereafter, to the extent certain terms and conditions continue to be met. The new ruling would allow for a reduced cantonal tax rate based on various thresholds of investment, including the ownership, development, and use of the non-U.S. intellectual property rights and employment in such jurisdiction. The transfer of ownership of such intellectual property rights to the Company's Swiss entity did not impact the Consolidated Financial Statements for the periods presented.

As of December 31, 2017, and 2016, the Company had valuation allowances of $29.4 million and $17.2 million, respectively, primarily related to California deferred tax assets generated by California R&D credit forwards which have no expiration period. The Company recorded a valuation allowance against its California deferred tax assets as it is more likely than not these deferred tax assets will not be realized as a result of the computation of California taxes under the single sales factor.

The Company recorded a net decrease of its gross unrecognized tax benefits of approximately $40.6 million during the year ended December 31, 2017. The net decrease was primarily due to the reversal of gross unrecognized tax benefits in connection with the expiration of certain statutes of limitation in various jurisdictions and associated re-measurement of uncertain tax position, partially offset by increases related to 2017 uncertain tax positions. The Company had gross unrecognized tax benefits of approximately $65.4 million, $106.0 million, and $92.4 million as of December 31, 2017, 2016, and 2015, respectively, which if recognized, would result in a reduction of the Company’s effective tax rate. The Company included interest expense accrued on unrecognized tax benefits as a component of its income tax expense. As of December 31, 2017, 2016, and 2015, gross interest related to unrecognized tax benefits accrued was approximately $1.8 million, $3.7 million, and $2.9 million, respectively. A majority of the Company's net unrecognized tax benefits and related interest is presented in Other accrued liabilities on the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amounts of gross unrecognized income tax benefits for the years ended December 31, 2017, 2016, and 2015, are as follows (in millions):

Years Ended December 31,

2017

2016

2015

Beginning balance

$

106.0

$

92.4

$

75.5

Increases related to tax positions taken during the current year

21.1

29.9

28.9

Increases related to tax positions taken during a prior year

—

—

0.3

Decreases related to tax positions taken during a prior year

(46.5

)

(0.5

)

—

Decreases related to settlements with tax authorities

(0.5

)

—

(11.4

)

Decreases related to expiration of statute of limitations

(14.7

)

(15.8

)

(0.9

)

Ending balance

$

65.4

$

106.0

$

92.4

The Company files federal, state and foreign income tax returns in many U.S. and OUS jurisdictions. Years before 2014 are closed for the significant jurisdictions. Certain of the Company’s unrecognized tax benefits could change due to activities of various tax authorities, including potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect the Company’s effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, the Company cannot estimate the range of reasonably possible change in unrecognized tax benefits that may occur in the next 12 months.

The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. The outcome of these audits cannot be predicted with certainty. The Company's management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.